Based on the revenue, expenditure and other proposals set out in the Budget, I forecast a deficit of $6.3 billion in the Operating Account and a deficit of $7.5 billion in the Consolidated Account for 2008-09. Public expenditure as a proportion of GDP will increase from 15.9 per cent in 2007-08 to 19.2 per cent in 2008-09. By 31 March 2009, our fiscal reserves will fall slightly to $477.4 billion.
The measures for promoting long-term development, supporting the disadvantaged, leaving wealth with the people and providing for the future proposed in this Budget will reduce government revenue by $33.5 billion and increase operating expenditure by $41.5 billion in 2008-09. The latter figure does not cover the $50 billion reserved for supporting health care financing arrangements.
As the measures proposed in this Budget are mostly one-off or time-limited, they will not have significant implications for future public finances. They will not lead to structural fiscal deficits and are therefore in line with the principle of sustainability.
The civil service establishment has been reduced from around 198000 in early 2000 to around 160000 in 2006-07 through two rounds of Voluntary Retirement Schemes and deletion of posts. Since the lifting of the moratorium on civil service recruitment on 1 April 2007, the establishment has increased slightly to about 162830 in 2007-08. In order to implement various policy initiatives and provide better public services, we estimate that about 1680 posts will be created in 2008-09, bringing the civil service establishment to about 164500 by the end of March 2009.
From a macro-economic perspective, it is expected that the surplus of $63.7 billion recorded in government operating account for 2007-08 will turn into a deficit of $6.3 billion in 2008-09, creating a fiscal stimulus of about $70 billion. This will give some impetus to the overall economy although the effect will not be significant in 2008.
Of this $70 billion, about 40 per cent is the one-off provision for establishing a Research Endowment Fund and the one-off injection into MPF accounts. The impact of these measures will be felt in the medium to long term and will not have any short term economic impact.
The other measures will benefit our citizens at different times of the year. The effects of some may only appear at the beginning of 2009. Moreover, many people will put aside as savings part of the money they will now keep through the concessions. Therefore, these measures will not generate a lot of domestic demand in a short period of time. The stimulating effect on inflation should be limited.
The external economic and financial environment will be full of challenges in 2008. Hong Kong faces the risk of a slowdown in economic growth. The implementation of the measures proposed in this Budget should produce a moderately buoyant effect on our economy. Furthermore, some of the concessionary measures will benefit our citizens directly and ease the impact of